Identifier
Created
Classification
Origin
09BEIJING3296
2009-12-10 12:44:00
CONFIDENTIAL
Embassy Beijing
Cable title:  

INITIAL CHINESE REBUFF OF INDIGENOUS INNOVATION

Tags:  CM ECON ETRD PGOV SCUL SOCI 
pdf how-to read a cable
VZCZCXRO2509
OO RUEHCN RUEHGH RUEHVC
DE RUEHBJ #3296/01 3441244
ZNY CCCCC ZZH
O 101244Z DEC 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7150
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEHUL/AMEMBASSY SEOUL PRIORITY 1424
RUEHKO/AMEMBASSY TOKYO PRIORITY 0136
RHMFISS/DEPT OF HOMELAND SECURITY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 2558
RHMFISS/FBI WASHINGTON DC PRIORITY
RUEHIN/AIT TAIPEI PRIORITY 7435
C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 003296 

SIPDIS

STATE FOR EAP/CM - WKLEIN, SFLATT
STATE FOR EEB/CIP - SFLYNN, FSAEED
USTR FOR AWINTER, JMCHALE, TWINELAND, JGRIER
COMMERCE FOR ITA - IKASOFF, NMELCHER, ATING
DOJ FOR CCIPS - MDUBOSE AND SCHEMTOB
FBI FOR LBRYANT
STATE FOR WHITE HOUSE OSTP AMBASSADOR RICHARD RUSSELL
NSC FOR MELISSA HATHAWAY

E.O. 12958: DECL: 12/10/2019
TAGS: CM ECON ETRD PGOV SCUL SOCI
SUBJECT: INITIAL CHINESE REBUFF OF INDIGENOUS INNOVATION
DEMARCHE NOT THE LAST WORD

REF: SECSTATE 124680

Classified By: Econ Minister Counselor William Weinstein for reasons
C O N F I D E N T I A L SECTION 01 OF 03 BEIJING 003296

SIPDIS

STATE FOR EAP/CM - WKLEIN, SFLATT
STATE FOR EEB/CIP - SFLYNN, FSAEED
USTR FOR AWINTER, JMCHALE, TWINELAND, JGRIER
COMMERCE FOR ITA - IKASOFF, NMELCHER, ATING
DOJ FOR CCIPS - MDUBOSE AND SCHEMTOB
FBI FOR LBRYANT
STATE FOR WHITE HOUSE OSTP AMBASSADOR RICHARD RUSSELL
NSC FOR MELISSA HATHAWAY

E.O. 12958: DECL: 12/10/2019
TAGS: CM ECON ETRD PGOV SCUL SOCI
SUBJECT: INITIAL CHINESE REBUFF OF INDIGENOUS INNOVATION
DEMARCHE NOT THE LAST WORD

REF: SECSTATE 124680

Classified By: Econ Minister Counselor William Weinstein for reasons 1.
4 (b) and (d).


1. Confidential - entire text.


2. (C) SUMMARY: Ambassador Huntsman transmitted reftel
demarche points under cover of a letter to the Ministers of
MOST, MOF and the NDRC on December 9. Separately, emboffs on
December 10 delivered reftel demarche to Ministry of Finance
(MOF) Deputy Director General Wang Ying. Ms. Wang, MOFs lead
on government procurement issues, asserted U.S. concerns were
unwarranted. She gave a lengthy series of "clarifications"
of the November 6 Circular, which she claimed in no way
contradicted PRC commitments at the SnED and JCCT to treat
Foreign Invested Enterprise (FIE)-produced products the same
as domestic products for the purposes of government
procurement. When pressed at the close as to whether her
points represented China's official interagency response to
our demarche, Wang demurred that it was instead her
"personal" view, noting there would be further and extensive
coordination with relevant agencies on this "very
complicated" issue. She did not make any commitment to
suspending the Circular's implementation. END SUMMARY.


2. (C) On December 09 Ambassador Huntsman transmitted reftel
demarche points on indigenous innovation/government
procurement under cover of a personal letter to Minister of
Science and Technology (MOST) Minister Wan Gang, Minister of
Finance Xie Xuren, and National Development and Reform
Commission Chairman Zhang Ping. (Text of cover letter sent by
email to Washington agencies). No direct responses to the
Ambassador's communication have been received . MOF had
turned down earlier urgent requests for meetings this week at
the Director General (DG) level with Econ Minister Counselor

Weinstein, as had the NDRC and Ministry of Science and
Technology (MOST),claiming no appropriate official was
available to receive the demarche. Eventually, Econ External
Unit Chief Candy Green and Commerce's Market and Compliance
Office Director Teresa Howes obtained an appointment to
deliver reftel demarche on December 11 to Ministry of Finance
(MOF) Deputy Director General of the Department of Treasury
Wang Ying (MOFs lead on government procurement and WTO
Government Procurement Agreement (GPA) accession.)


3. (C) Stressing the importance the United States attaches to
this issue, Green and Howes orally presented demarche points
in their entirety and handed over an unofficial Embassy
translation in Chinese. Ms. Wang said she was glad to
discuss this issue of obviously serious concern to the U.S.,
noting the "unprecedented pressure" applied by the United
States on this issue in the past few days. Wang cited the
team of office directors by her side as proof of the matching
seriousness of the PRC. She had received a copy of
Ambassador Huntsman's letter to her Minister at the opening
of business December 10 and had been working all day on
preparing a response.


4. (C) Wang delivered a polite but lengthy monologue
rebutting all the U.S. concerns as unwarranted. She averred
that the subject circular (issued November 6 by MOST, MOF and
NDRC) did not violate in any way the Chinese government's
commitments on government procurement at the July SnED and
October JCCT. Nor, she claimed, did it contradict the
non-discrimination provisions of the WTO. The rationale:
the circular's provisions are about "accreditation" of
indigenous innovation products (IIPs) in a "broad sense", not
about accreditation for IIPs under government procurement per
se. (Wang later noted, however, that the PRC was considering
formulation of a government procurement catalogue for IIPs -
the next link in this chain - but that work was still
incomplete. She did not see any logical contradiction here.)


BEIJING 00003296 002 OF 003



5. (C) Judging from our demarche, Wang continued, the United
States also appeared to have "confused" the registration of
IIPs with the registration of domestic (vice foreign)
products. The PRC's SnED and JCCT commitments were in
reference to the definition of domestic products. Definining
IIPs was about intellectual property rights and innovation
content, Wang elaborated, and not about domestic versus
foreign products. China's government was fully committed to
following up commitments it had made in the SnED and JCCT on
giving equal treatment to products produced by FIEs in China.
A separate process was underwray for accreditation of
domestic products.


6. (C) Furthermore, the PRC had been entirely open and
transparent in this process, Wang opined, despite U.S.
demarche concerns to the contrary. The PRC had published all
the accreditation standards, application materials and
procedures to qualify as an IIP. The Circular itself had
been posted on web sites of the issuing agencies. After
completion of the accreditation process, which would be
managed centrally, the catalogue of qualifying products would
also be published openly.


7. (C) Wang described at length the context and justification
for China's concerted policies to promote indigenous
innovation, noting that despite attracting large amounts of
foreign investment and advanced technology, there still
remained a gap between these advances and technical
innovations being made in China. These "contradictions"
restricted China's further development. Key policy
initiatives (like the Circular in question) are now being
developed to cultivate an admosphere in which technical and
economic innovation can flourish. She said the United States
also encourages indigenous innovation, noting satellite
technologies and USG practices for identification of
contractors (in strategic sectors) as examples.


8. (C) Green expressed appreciation for the detailed response
from Wang and noted it would be communicated to Washington.
Our initial reaction, however, was that U.S.concerns remained
as stated in the demarche, and we strongly urged China to
suspend implementation of the Circular until such time as our
concerns regarding it had been fully addressed. She argued
that innovation and IPR could not be credibly separated from
the products in which they were integrated for the purposes
of meeting China's JCCT and SnED commitments. She also
disputed China's transparency and openness in this process,
noting that companies needed to be able to engage in dialogue
with the PRC before standards were set to judge accreditation
of IIPs -- not just read about them as a fait accompli. Howes
pointed out that China's actions in this arena would chill
innovation-heavy foreign investment and discourage economic
growth in this area.


9. (C) Wang said she would convey the substance of the
meeting to her Minister and be in close consultations with
other PRC entities on this "very complicated" issue. She was
not optimistic about suspending the implementation of the
Circular's provisions, saying this process was a public one
and such a delay would damage the government's credibility.
Though Wang indicated at the outset that she had been
investigating this issue with other involved agencies in
preparation for our meeting, when pressed afterwards on
whether her response represented an interagency cleared view
she more cautiously stated it was merely her "personal" one.


10. (C) COMMENT: Future high-level pressure on the PRC,
particularly in tandem with other concerned governments,
could usefully continue to link our larger concerns over
discrimination against non-indigenous IP to the most
immediate goal of suspending the circular. We will also need
to be prepared to respond to PRC rebuttals that USG
procurement policies also support domestic innovation,
particularly in strategic sectors. END COMMENT.

BEIJING 00003296 003 OF 003




HUNTSMAN